This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Dow 13,000? Get Ready for the Pullback

Stocks in this article: ^DJI WMT

NEW YORK ( TheStreet) -- Analysts aren't sure when the Dow Jones Industrial Average will close above 13,000. They're far more certain of the pullback to follow shortly thereafter.

Market participants are likely take some profits when the index reaches this psychological level. The last time the index closed above 13,000 was in May of 2008. Analysts have been speculating since January that equities are due to cool off after a steep run up this year. The 13,000 level might provide a key opportunity for investors to take money off the table.

As of about 11:25 p.m. ET, the index peaked above 13,000. But, it was wasn't barreling toward the level in anyway. Already, corporate news is keeping a cap on the index's gains. In particular, a 4% loss in Wal-Mart (WMT) shares after the retailer missed earnings expectations this morning was keeping the Dow from inching higher.

The buzz around corporate earnings is likely only to grow more negative, which will undoubtedly put dampers on overall market sentiment. According to S&P Capital IQ, the S&P 500's double digit growth streak of eight quarters is now in jeopardy. "The last time this happened was in the third quarter of 2009 when the S&P 500 declined 1.62% from the previous year." Analysts are keeping a close watch on less than 20% companies on the S&P index still to report fourth quarter results.

Meanwhile, first quarter earnings aren't looking good either. About one-fifth of companies decided to provide guidance this earnings season, versus the usual one-third of companies giving forecasts, according to S&P Capital IQ. Companies are reluctant to call their futures given uncertain growth rates in emerging markets and unpredictable raw material costs.

Paul Nolte notes that stocks overall have gained more than 15% since early October 2011. "There is room on the upside, and maybe another month or two to go," he writes in a recent research note. "But instead of looking to squeeze additional gains, it may make more sense to be looking for a door."

Furthermore, the consensus reaction to the Greek debt deal on Tuesday seems to be that European leaders have only bought more time before the struggling country skids close to a default again. The Dow, which sold off a bit on news of the deal earlier in the morning before climbing just 50 or so points, seems to agree.

Private creditors need to "voluntarily" accept the more than 50% haircut to their bond holdings once Greece launches its debt swap. Barclays Capital has a taste of what could go wrong as the country tries to implement its very tricky bailout deal:

"If the private sector involvement participation rate is not high enough, Greece is likely to apply retroactive collective action clauses (CACs), which could lead to a credit event. Furthermore, there is the potential for early elections (possibly in April) and the parties that do not support the program are gaining traction. The package also requires parliamentary approval in Austria, Finland, Germany, Netherlands and Slovenia."

Technical analysis also supports a near-term pullback on the Dow. Market watchers note that the Dow Jones Transports, a cyclical index that has often been a leading indicator for the broader market, is rolling over. "While the Dow Jones Industrial Average has exceeded its 2011 high, the Dow Jones Transports, at their recent closing high, was about 4% below its 2011 peak," writes Mark Arbeter, S&P Capital IQ's technical strategist. "This non-confirmation by the transports is a bit worrisome and cause for some caution."

All this is to say the blue chip index isn't barreling toward its all-time high of 14,164 anytime soon.

-- Written by Chao Deng in New York.

>To contact the writer of this article, click here: Chao Deng.

Readers Also Like:


Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs